Your Quarterly E-Zine
Edition 11 • December 2019

This website contains the latest edition of Forsyth Barr Focus, a quarterly on-line magazine written by senior members of Forsyth Barr's investment team.

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We have undertaken a comprehensive analysis of listed New Zealand Companies to determine those representing the highest quality.

Our top 10 highest quality companies for 2019, in alphabetical order are: Air New Zealand (AIR), Auckland Airport (AIA), Fisher & Paykel Healthcare (FPH), Infratil (IFT), Mainfreight (MFT), Meridian Energy (MEL), Port of Tauranga (POT), Ryman Healthcare (RYM), Spark (SPK) and Summerset (SUM).

Our analysis shows that our 2019 top 10 companies have outperformed the domestic market (S&P/NZX 50) materially over the past five years, supporting the notion that higher quality companies outperform over the long-term. On average our 2019 top 10 have generated total shareholder returns of +154%, reflecting an annual compound rate of +21%. However, New Zealand’s Highest Quality Companies[1] are relatively more expensive trading on an average one-year forward PE (price-to-earnings) multiple of 24.6x, a +25% premium to the average one-year forward PE of the S&P/NZX 50. Our top 10 for 2019 also tend to be larger in size with an average market capitalisation of $5,116m, materially higher than the average company in the S&P/NZX 50 (excluding ANZ and Westpac) of $1,731m.

We define quality companies in our framework as those that generate long-term value. The Forsyth Barr Equity Research approach to evaluating companies includes six criteria: business quality, financial structure, earnings and cash flow outlook, risk factors, catalysts and valuation. In our analysis of New Zealand’s Highest Quality Companies we examine the first four of these criteria (business quality, financial structure, earnings and cash flow outlook and risk factors) and segment these into key components we believe contribute to sustainable and long-term value. Our assessment is made irrespective of valuation and expected catalysts as these represent share price opportunities as constraints rather than insights into long-term value.

Five companies that just missed out on the top 10 were EBOS, Freightways, Genesis Energy, TradeMe and Vector, listed in alphabetical order.

We encourage you to contact your Investment Advisor to discuss New Zealand’s Highest Quality Companies further.

Andy Bowley
Head of Research

For a printable PDF of this article click here

[1] New Zealand’s Highest Quality Companies is a new publication of the Forsyth Barr New Zealand Equity Research team